Geopolitics, Sanctions, Oil and LNG Markets

Key highlights:

• Geopolitics and oil prices: Geopolitical events only have a lasting impact on oil and gas prices when they physically disrupt supply. Otherwise, volatility triggered by geopolitical tensions is usually short-lived.

• Sanctions on Russia: The effectiveness of newly imposed EU sanctions hinges on enforcement. Greater participation by major buyers such as India and China would significantly strengthen their impact.

• Hurricane season risk: The US hurricane season could cause short-term price spikes if infrastructure is disrupted, but it is not expected to alter the overall direction of markets.

• Supply-demand imbalance: Robust supply growth from the US, Canada, Guyana, and Brazil is colliding with slower demand growth. This imbalance is keeping markets well-supplied and limiting upward price momentum.

• LNG trade shifts: Liquefied natural gas has become a cornerstone of global energy trade, illustrated by the $250 billion import agreement between the US and the EU. This deal raises critical questions about how other regions, particularly Asia, will meet their LNG needs — a challenge shaped by demand growth, competition from other fuels, and the availability of long-term supply.

• Oil price outlook: In the absence of major supply disruptions, oil prices are expected to remain range-bound between $60–80 per barrel, reflecting current fundamentals.

• India’s balancing act: Since the war in Ukraine, India has sharply increased imports of discounted Russian oil, securing substantial economic gains. At the same time, it faces rising political risks, especially the threat of secondary sanctions from the US and EU over its continued trade with Moscow.